Medicaid Managed Care - U.S. Senate Special Committee on Aging
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Medicaid Managed Care - U.S. Senate Special Committee on Aging

Medicaid Managed Care - U.S. Senate Special Committee on Aging Medicaid Managed Care - U.S. Senate Special Committee on Aging

aging.senate.gov
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Z, W 0 V==4 . k PQ- 0 V-- 9 Q) bo =g U =4 - 0 Q) 0 - Q) 9- 846 Why Not the Best for the Chronically Ill? Prepared by Stanley B. Jones Director Health Insurance Reform Project Januar 1996 Health Insurance Reform Project, George Washington University Prepared with support from the Commonwealth Fund The

Summnary: Premium adjustors to neutralize risk selection among health plans are the weakest component in the technologyfor assuring competitive markets. It will be many years before we have adjustors adequate to free health plans to invest in and market improved managed care to predictably high-cost chronically ill persons. For want of a fair premium, health plans are driven by risk selection to underinvest in and otherwise "demarket' care to these very employees and beneficiaries whose costs and care most need to be managed. To achieve best value for the chronically ill, large employer coalitions, Medicare, and ong>Medicaidong> should consider radical new apvroaches, such as establishing separate prices for care to people with specific chronic conditions and purchasing such care both from health plans and directlyfrom provider systems. Chronic conditions involve health care needs that seem particularly suited to the kind of improved coordination and capitated payment associated with managed care. Such conditions often require the patient to deal with numerous and varied providers of services over a protracted period of time. In addition, they frequently involve a progression (often downward) over time that requires adjustments in services-to both accommodate to and retard further loss. And they affect patients differently -often requiring very tailored services. In many cases, patients must comply with complex instructions to avoid acute episodes or more rapid deterioration. Health care providers need clinical time to work with such patients -and flexibility to organize care to meet individual needs-beyond that provided under the usual acute medical care fee schedule and coverage categories. Moreover, the chronically in incur high costs for employers and public programs. Health care costs for persons with moderate chronic disabilities, for example, may be as much as two to three times higher than those for persons without disabilities.' In addition, the morbidity associated with chronic conditions costs employers a great deal in absenteeism and lost productivity. 847 -2- Given the opportunity managed care seems to offer for the chronically ill, employers, Medicare, and ong>Medicaidong> by all rights might hope to see health plans competing to develop and market higher-quality and more cost-effective plans for chronically ill employees. Purchasers might hope to see plans advertising aggressively to enroll chronically ill employees and beneficiaries, and they might well want to help channel these employees and beneficiaries to the plans that offer the best value. This hopeful scenario is not justified by the incentives in today's health plan market. ADVERSE RISK SELECTION AND ITS CONSEQUENCES In the market of competing health plans, the threat-of adverse risk selection encourages health plans to be at best ambivalent about investing in care for the chronically ill. On the one hand, such investments offer great potential for reductions in costs and improvements in value. But on the other hand, if a plan becomes known among employees or beneficiaries as better than its competitors at caring for people with a particular chronic condition, it is likly to attract more such subscribers during open seasons, and its costs and premiums are likely to rise in comparison to its competitors'. This is because, in serving people with chronic conditions, it is hard to be so efficient that the cost of care to a chronically ill enrollee is at or below the average for a plan's enrollees. Ultimately, a plan cannot quote a competitive premium if it enrolls many more than its proportionate share of sicker employees or less than its share of healthier employees. The importance of risk selection in determining premiums of competing health plans was first documented publicly in the Federal Employees Health Benefits Plan (FEHBP). In 1989, the actuarial values of nine FEHBP plans studied varied by no more than 35%/6, but the premium of the highest-cost plan was 246% greater than the lowest-cost plan, due primarily to adverse selection. The high-option and standard-option Blue Cross and Blue Shield

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Why Not the Best for the<br />

Chr<strong>on</strong>ically Ill?<br />

Prepared by<br />

Stanley B. J<strong>on</strong>es<br />

Director<br />

Health Insurance Reform Project<br />

Januar 1996<br />

Health Insurance Reform Project, George Washingt<strong>on</strong> University<br />

Prepared with support from the Comm<strong>on</strong>wealth Fund<br />

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